Gold – Encouraged or Discouraged?

Gold – Encouraged or Discouraged?

Commentary for Friday, April 14, 2023 (www.golddealer.com) – Today gold closed down $39.10 at $2002.20, and silver closed down $0.45 at $25.42. The gold trade today is a disappointment to the bulls because a promising week, based on a solid technical picture and increasing buzz failed to move above the expected $2050.00. And as the bears roared the gold dipped below its physiologically important support at $2000.00. Actually, this dip may be nothing more than a reminder that trading sentiment remains fickle in the extreme. This now common up-and-down trading pattern has been repeating itself for months and the jury is still out as to who holds the better hand. This latest dip, for my money, is not much of a worry if gold holds up between $1960.00 and $1980.00 because I suspect paper traders expected tough overhead resistance at $2050.00. Last Thursday gold closed at $2011.90 / silver at $25.03 – on the week gold was down $9.70 and silver was higher by $0.39.

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On Monday gold dipped below the important $2000.00 support on a round of profit taking as the Dollar Index moved higher by ¾ of a point. A strong jobs number last Friday (April 7^th) does not suggest a dovish pivot by the Fed is in the cards in the short term.

The commodity market was closed for Good Friday. Today’s dip reflects the economic news that raised the bearish stakes during the Easter holiday.

This weakness is a disappointment to the bulls looking for a tangible reason that the Fed will become more dovish. But the drop is not the end of the world and gold will recover as the dollar comes off recent highs.

Look for some sort of price “channeling”, supported by continued troubles within the world central banking system. And expect significant support at $1950.00 with tough overheard resistance as gold approaches $2000.00.

How this all will play out in the medium to longer term remains to be seen. For the present the bulls hold the technical advantage, but higher interest rates favor the bearish scenario. With gold $100.00 in the green this past month traders will at least consider additional profit taking.

Reuters (Deep Kaushik Vakil) – Gold slides under $2,000 as jobs growth lifts dollar – “Gold slipped below the key $2,000 level on Monday as the dollar advanced on Friday’s strong U.S. jobs numbers, while traders also positioned for inflation readings this week that could offer further cues on interest rate hikes. U.S. employers maintained a strong pace of hiring in March, likely giving room for the Federal Reserve to hike rates again. Chances of a 25-basis point rate hike next month were now pegged at 69%, driving an uptick in the dollar, making dollar-denominated bullion less attractive for holders of other currencies. Higher interest rates usually dull the appeal of zero-yielding gold, despite its traditional status as an inflation hedge. “With the probability of energy inflation, rate hikes are still on the table and that can push gold back even further,” said Daniel Pavilonis, senior market strategist at RJO Futures. Gold surpassed $2,000 last week as weak U.S. economic data spurred worries of a slowdown following a surge in oil. “If interest rates are a quarter basis point here, quarter basis point there, I don’t think the stocks would react too negatively to that, but what that would do to gold is really box the market in,” Pavilonis added. The U.S. CPI print is due at 1230 GMT (8:30 a.m. ET) on Wednesday and will be followed by Fed minutes from their last meeting, later in the day. Signs that U.S. disinflation is gathering pace, allowing the Fed to pause rate hikes sooner rather than later, may restore gold to recent highs, said Han Tan, chief market analyst at Exinity.”

On the day gold closed down $22.80 at $1989.10, and silver closed down $0.18 at $24.85.

On Tuesday gold strengthened as the dollar weakened. The Dollar Index came off Monday highs (102.77) and moved lower by more than half a point. This looks like a series of typical oscillations in a confused market. But we are seeing mild bargain hunting from Monday’s drop in the price of gold. Today comments by New York Fed President Williams were not dovish but he did sound as though there is more room for a cautious approach to the still in question interest rate dilemma. This will help bullish sentiment looking for fresh positive information. That being said the price of gold seems to fade easily above $2000.00 so unless the dollar continues lower, which is not likely in the short term, traders may still be inclined to rounds of profit taking.

It is interesting that silver speculators, even at these lofty levels, are growing. Some paper traders believe the current pricing range is old-fashioned consolidation. And they expect higher prices in the near future. I’m not that bullish but these fresh thoughts are not that far away from a new development. If so, silver might become the new price leader as gold struggles to hold $2000.00. Primary silver bullion demand may already be in the early stage of shifting to China.

Reuters – Fed’s Williams says interest rate path is data dependent – “The prospect of the Federal Reserve raising its benchmark interest rate only once more and in a 25-basis point increment is a useful starting point, but the central bank’s policy path will depend on incoming data, New York Fed President John Williams said on Tuesday. The Fed raised rates by 25 basis points to a 4.75%-5.00% range at that meeting. However, it has adopted a more cautious approach following recent banking turmoil, which has raised expectations of a swifter slowdown in the economy as banks become more wary about lending. Williams repeated comments he made on Monday that he had yet to see much sign of credit conditions tightening and it would take time to see how that played out, while cautioning that inflation still remained too high. “That’s a reasonable starting place. I mean, that’s the median we saw from my colleagues,” Williams said in an interview on Yahoo Finance, referring to the Fed’s median estimate at its last meeting in March of a peak in interest rates in the 5.00%-5.25% range. “We have to be driven by the data,” Williams said. “I will say that one thing that we’re paying attention to is credit conditions, but also do we really see signs of this underlying inflation coming down?” He added that employment data for March showed the jobs market was still “very strong” and noted that while goods and commodities inflation has come down, pricing pressures in other areas remain more high. “Some of this core services inflation excluding housing hasn’t budged yet so we’ve got our work cut out for us to get inflation back to 2%,” he said. Inflation by the Fed’s preferred measure is still running at more than twice that target rate. “So the real question to me is, we’ve gotten to restrictive (on policy), what’s it going to take to be sufficiently restrictive? Do we need to do somewhat more to get there? And obviously, that’ll be driven by the data and the outlook.”

On the day gold closed up $15.70 at $2004.80, and silver closed up $0.28 at $25.13.

Zaner (Chicago) – “We are a little surprised with the strength in gold and silver prices this morning following signs of significant softening in Chinese inflation readings overnight. Perhaps the gold and silver trade see the precipitous weakness in Chinese inflation adding to global economic uncertainty. However, soft Chinese inflation data also sparked chatter of a possible Chinese stimulus effort and that could become a pillar of the bull case ahead. It is also possible that flight to quality buying has surfaced with the Chinese Navy lingering in the waters around Taiwan despite the end of military exercises! Certainly, weakness in the dollar is an additive to the bull case this morning but does not appear to be a key element given the index remains inside yesterday’s trading range. Overnight gold ETF holdings increased by 3488 ounces while silver holdings declined by a mere 137 ounces. However, the Fed’s Williams yesterday indicated American households are facing tightening credit conditions which in turn he suggested could slow the economy. Perhaps commodities are being lifted this morning by suggestions from BlackRock that the Fed will not have to raise interest rates next month in a forecast that would seem to suggest the large fund manager thinks upcoming US inflation readings will moderate. The big question for gold and silver bulls is whether the bull track will extend if inflation is found to be moderating? With the silver market avoiding significant corrective action in the face of gold declines in the prior 3 sessions and prices remaining near an upside breakout this morning, it is possible that silver is poised to take a leadership role. In fact, if risk-on becomes widespread because of softer global inflation readings, improved physical/industrial demand hope for silver could become the main feature in the trade. Key support in gold is $2008 today with a rise above a past double high at $2023.90, a potential trigger for fresh speculative buying. Critical pivot point support in May silver today is seen at $24.795.”

On Wednesday gold pricing was erratic – moving dramatically higher in the early trade, and finally settling midrange on the close. Reuters – “Gold accelerated over 1% on Wednesday as signs of cooling inflation added fodder to bets for a pause in U.S. interest rate hikes and dragged down the dollar and yields ahead of U.S. Federal Reserve’s latest meeting minutes.” Reuters references a long-term pricing chart and points out that the price of gold has broken its three major moving averages and suggests a softer US CPI print bolstered bets for a pause in Fed rate hikes. And today the dollar weakened joining this happy bullish party as the Dollar Index lost another half point (101.50).

As usual, the reality of a stubborn Fed offered the bulls another wet blanket. “The risks of not raising rates enough far exceeds over-tightening so the Fed is probably going to go forward with the quarter-point rate hike, the core justifies it,” said Edward Moya, senior market analyst at OANDA. Mr. Moya and most analysts today are not anti-gold, but they are realists. The Fed has said many times, their first concern is inflation so turning dovish in the middle of this perhaps long unwinding process is just not in the cards.

This reality, for some reason must be learned and then relearned. That reality caused gold to reverse direction and finish the day mildly in the green yet still defensive. Moya added a promising epithet – “There’s still a tremendous amount of risk on the table, so gold should still see some strong flows headed its way.” Still, no cigar for the bulls and the bears are ready to make this trade into a homecoming if the Fed continues raising interest rates.

To complicate matters, there are solid analysts which believe the signs of “slowing” are all over the place! They already buy the notion that inflation is slowing therefore there is no need for further rate hikes. A bullish conclusion supporting higher gold prices.

The latest Fed minutes will be out later today, and this may provide fresh information.

On the day gold closed $6.10 at $2010.90, and silver closed up $0.27 at $25.40.

On Thursday the gold again moved higher on the open, challenging $2050.00 before traders sold the rally. The core question, however, remains the same. Are these higher prices created by a shift in sentiment or are we looking at the same old “see – saw” trading action in place for months. There are many divergent crosscurrents here, but there are two main reasons for this fresh round of bullish sentiment. The first reason is chart based. From March through April, the price of gold has formed a significant upward trough with rising bottoms and rising tops. This draws in bullish action from the technically driven trade. In other words, it does not matter why prices are moving higher, a computer model simply creates a buy order and momentum players join the party. The second reason, and probably the more important aspect of this newly created buzz is that yesterday’s Fed minutes release indicated that several Fed insiders are now considering a halt to interest rate hikes over fear of an induced recession. Of course, the bulls are hoping that this is the beginning of an actual shift in the policy making machine. But expecting even higher prices in both gold and silver may be a stretch at this point. I’m happy enough just to say that another log has been thrown on an uncertain inflation campfire.

Reuters (Deep Kaushik Vakil) – Gold gains to one-year high as economic concerns grow – “Gold rose to a more than one-year high on Thursday as more weak U.S. economic readings bolstered bets for a pause in interest rate hikes, with prospects of a mild recession also sending investors scurrying for the safe-haven metal. Treasury yields slipped while the dollar slid after data showed a moderation in the rise in producer prices last month and an uptick in jobless claims, suggesting the Federal Reserve’s aggressive tightening over the past year was taking a toll on the economy. Further, U.S. consumer prices barely rose in March as the cost of gasoline declined, but stubbornly high rents kept underlying inflation pressures simmering. “That’s an underlying positive environment for gold where the Fed is done with their interest rate hike cycle, yet inflation overall remains higher than they would like,” said David Meger, director of metals trading at High Ridge Futures. This comes after U.S. Fed minutes on Wednesday indicated that several policymakers considered pausing rate increases and projected that recent banking sector stress would tip the economy into recession. Safe haven gold tends to gain during times of economic or financial uncertainty, while lower rates also lift the appeal of the zero-yield asset. But while gold is likely to remain bid with traders nervous about an economic recession and an extension of the banking crisis, it is likely to remain prone to profit taking on the highs, said independent analyst Ross Norman.”

On the day gold closed up $30.40 at $2041.30, and silver closed up $0.47 at $25.87.

Zaner (Chicago) – “Gold and silver bulls traversed the first US inflation report in very good stead and appear to be poised for new highs in the wake of today’s US Producer Price inflation report. Apparently, the bull camp has embraced the idea of a possible Fed pause even though there is chatter in the marketplace of “one and done”. In fact, market chatter overnight is projecting the ECB to raise rates 25 basis points next month and yet gold and silver seem unfazed. However, with the dollar breaking out to the lowest level since February 2nd it appears that gold and silver will see an additional lift from the currency markets. While the inflows to gold ETF holdings have not been significant recently yesterday saw the 6th straight daily inflow with 106,724 ounces purchased which in turn reduces the year-to-date decline in holdings to 0.3%. Silver ETF holdings also increased by 1.6 million ounces yesterday and are now 0.6% higher year-to-date. Apparently, the gold trade is unfazed by news of a decline in Indian April 2022/March 2023 gold imports which registered a value of only $35 billion versus $46 billion in the previous year. However, negative Indian gold demand news is offset by optimism toward the Chinese economy following evidence of record Chinese iron ore imports in the first quarter. Going forward, the gold market is garnering significant bullish Press with several articles overnight predicting record prices and or indicating the gold rally has only just begun. Despite a lack of significant upside action yesterday in the wake of a soft US CPI report, the bias remains up in gold and silver into the 2nd round of critical US inflation data today. Perhaps the trade failed to react to yesterday’s inflation news because the markets wanted a secondary confirmation that inflation was moderating. Therefore, it is possible that the post-US PPI report trade today will show increased bullish volatility. However, it appears the US dollar will be a steady supporter of the bull case in gold as an abatement of US inflation could result in the dollar giving significant ground relative to the euro and Swiss franc. With recent sharp gains in silver forged on surging volume and higher open interest it appears the bull camp has momentum on its side. In fact, favorable Chinese physical commodity imports and prospects of a looming end to the global interest rate hike cycle could leave silver with a near term target of $27.00.”

On Friday gold finished the week with a significant swoop to the downside after making a fresh 13-month high on Thursday – so these markets are not for the uninformed.

But it is possible that the price of gold is already in oversold territory. It will be interesting to see if traders aggressively buy this dip next week or remain defensive.

There was mild buying interest on the close which helped gold settle around $2000.00. but you will get a better indication early next week. I’m looking for something in the “middle” of the pricing range. This makes the most sense because while the bulls enjoy the short-term advantage the bears can crowd this trade just as easily with a continued shift in sentiment.

Neils Christensen (Kitco) – Gold prices slide lower as UofM consumer sentiment rises to 63.5 – “Stronger-than-expected U.S. consumer sentiment is adding further selling pressure to gold and is solidifying expectations that the Federal Reserve will raise interest rates by 25 basis points next month. Friday, the University of Michigan said the preliminary reading of its Consumer Sentiment Index rose to 63.5, down from 62.0 in March. The data beat expectations as consensus forecasts called for a roughly unchanged reading in consumer sentiment. “Sentiment is now about 3% below a year ago but 27% above the all-time low from last June,” the report said. The gold market has seen selling pressure ahead of the weekend as investors take profits after prices hit a 13-month high Thursday. The better-than-expected data is adding to gold’s correction. According to analysts, gold is seeing some selling pressure as consumer inflation expectations support calls for the Federal Reserve to raise interest rates again next month. According to the survey, consumers see inflation rising 4.6% by this time next year, up from 3.6% reported in March. “While consumers have noted the easing of inflation among durable goods and cars, they still expect high inflation to persist, at least in the short run,” the report said. “These expectations have been seesawing for four consecutive months, alternating between increases and decreases. Uncertainty over short-run inflation expectations continues to be notably elevated, indicating that the recent volatility in expected year-ahead inflation is likely to continue.” Long term, consumers see inflation relatively stable at 2.9%, unchanged for the fifth consecutive month. Five-year inflation expectations have moved in a range between 2.9% and 3.1% for 20 of the last 21 months, the report said. Markets now see a more than 85% chance that the Federal Reserve will continue to tighten interest rates. Forecasts for the Federal Reserve’s rate cut are also being pushed back until after the summer.”

On the day gold closed down $39.10 at $2002.20, and silver closed down $0.45 at $25.42.

Platinum closed down $11.50 at $1044.60, and palladium closed up $0.70 at $1493.00.

Brothers and Sisters, thank you for your friendship. If you have unusual circumstances, need cash or a special visit – talk to Harry or Eric. We are now back to our traditional business model. Thank you for your patience. Have a blessed day. Richard Schwary

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